Moody's, Fitch, S&P, SEC Are All Useless

As predicted, SEC planning measures to rein in aggressive short-selling partly blamed for Lehman's (LEH) demise.

With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies.

During emergency meetings between federal officials and investment bank executives over the weekend, SEC Chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive "naked" short-selling, a person familiar with the matter said Monday.

Unlike the SEC's temporary emergency ban this summer covering naked short-selling in 19 stocks, the new measures would apply to trading in the broader market.

The measures likely would include removing an exception for market makers in options on stocks from rules restricting naked short-selling, and a tightening of anti-fraud rules related to that activity, according to the person familiar with the matter.

Those two measures could be put in place administratively by quick approval of the SEC commissioners. Another change, reducing from 13 to five the number of days that short-sellers would have to deliver stocks after an initial failure to do so, would require a public meeting and formal vote to propose it as a new rule.

Naked Shorting Zero Role In Demise Of Lehman

Naked shorting played no rile in the demise of Bear Stearns (BSC) or Lehman. The former is a long held belief, the latter is a fact. Inquiring minds might be asking for proof.

Proof is actually easy to find. There was not a single willing buyer in the weekend poker games with Lehman as the pot. Merrill Lynch (MER), J.P. Morgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), Bank of America (BAC), Barclays, and others were all players at the table. No one would risk a dime without Fed guarantees.

Lehman's market cap is now $129 million. Anyone of the players could have had it yesterday for a mere $2 billion. No one would make a bid. All the players knew Lehman was worthless.

Exactly how is it that naked shorting is responsible for no bid by the players? If Lehman had any worth, wouldn't someone have seen it? If by some miracle naked shorting is responsible, the shorts should be thanked for getting Lehman to its proper valuation: zero.

Fitch Downgrades Lehman

Proving how completely useless it is,

Fitch Downgrades Lehman Brothers Holdings Inc. to 'D' on Bankruptcy Filing

Fitch Ratings has downgraded the long- and short-term Issuer Default Ratings (IDRs) and outstanding debt ratings of Lehman Brothers Holdings Inc, (LBHI), parent of Lehman Brothers Inc and other subsidiaries as follows:

--Long-term IDR to 'D' from 'A+';
--Short-term IDR to 'D' from 'F1';
--Senior debt to 'CCC' from 'A+';
--Subordinated debt to 'C' from 'A';
--Preferred stock to 'C' from 'A'.

If that is the best Fitch can do, then why bother? Moody's and the S&P are equally useless.

I repeat my long standing call:

Time To Break Up The Credit Rating Cartel

.

Inquiring minds who read the article will discover that it was SEC sponsorship of Moody's, Fitch, and the S&P that made them the useless parrots they are today.

Comments

[Dawson Lodge:]

Absolutely correct !!! The ratings agencies and the SEC should be abolished and indicted for constructive fraud, racketeering, and money laundering. They are all corrupt, and a worthless sham designed to part the ignorant from their assets. Of course it all stems from the original grand fraud, the private Federal Reserve System, the greatest Ponzi scheme ever invented, designed to transfer the wealth of the American citizen to the state. Karl Marx, your shell game worked. Welcome to the United Soviet States of America!

2008 Sep 15 10:51 PM

[madasiwannabe:]

The credit rating agencies are all masters of the obvious. Downgrading a company after it falls says it all. Where were they 6 months ago when the market figured it out.

SEC is very good at sitting on their hands. Naked shorts are not killing stocks, bad policy and greedy companys are. As you alluded to, LEH was a victim of long selling, not short. Also include Paulson's confidence building backstop scheme. All it really did was make everyone question the real health of the market. You know it's time to worry when everyone tells you not to.

2008 Sep 15 11:37 PM

[D-leverage:]

Were you dialed into this past weekend's meetings from your Wisconsin gardin? Barclay's will pick up a significant number of the LEH employees and pay several billion to do so. Your broad brush slams of the agencies and the SEC are as abusive as naked short selling.

2008 Sep 17 07:01 AM

[neeb??:]

Dleverage, are you sure that his broad brush call was as abusive? Or are you loaded to the gills with long positions and got caught out?
I do believe that if the only one's who got it right were the naked shorts because the rest of us were caught up in our own portfolios to see the bigger picture then what?

2008 Sep 17 07:43 AM